Bass, who focuses on corporate turnarounds, has accumulated a long position in Penney over the past two weeks by buying the company's secured loans, said the person, who asked not to be named because the information is private. He has also sold a type of insurance called credit-default swaps to other investors that pays off only if the Plano, Texas-based company defaults on its debts, an event he considers unlikely, said the person.

Penney has turned into a quite the hedge fund circus.

It all began when Pershing Square Capital's Bill Ackman made a big investment in the company, securing a seat on the board of directors, and bringing in Apple retail guru Ron Johnson as CEO.

However, as Johnson rolled out his new retail strategy, Penney's sales collapsed, and eventually Johnson was ousted.

Earlier this summer, Ackman pushed the board to speed up the CEO search in an ugly public battle.

But this only attracted the attention of other big fund managers like George Soros' fund, which backed the board.